Canada’s Big Phone Companies Rest Easier; But that’s Not True for Government

It appears Canada is no closer to increasing competition in its mobile-phone sector after U.S wireless giant Verizon Communications Inc. shut the door on any plans to enter the country.

Still, for investors in Canada’s big-three phone operators – BCE Inc., Telus Corp., and Rogers Communications Inc. – it’s welcome news. Verizon’s entry into the domestic market would have posed a real threat to the profits of the Canadian operators’ fast growing wireless businesses. That’s no longer a worry.

Bloomberg News

A customer browses mobile phones at the Toronto Eaton Centre in Toronto.

The Canadian government wants a strong fourth national wireless carrier to challenge the country’s dominant three, to bring down voice and data prices and foster development of new mobile offerings. Wind Mobile and Mobilicity, Canada’s main start-up wireless operators, were meant to fill that role, but so far they’ve failed to make much of a dent. The incumbents quickly moved to match some of the new entrants’ lower priced offerings, hurting the start-ups’ attempts to capture market share. Indeed, Wind Mobile and Mobilicity are currently seeking buyers.

In June it looked like Verizon, the New York-based telecom giant, could be the new entrants’ saving grace, while serving as a formidable opponent to Canada’s incumbents. At the time, reports were widespread Verizon was mulling bids to acquire Wind and Mobilicity and offer mobile services in Canada. The stock prices of BCE, Rogers and Telus tanked in response.

Verizon’s U.S. wireless subscriber base of about 100 million dwarfs the combined size of Canada’s big three operators and it could have used that size to source popular smartphones at a lower cost and offer them to customers at cheaper prices than the Canadian incumbents.

However, Verizon Chief Executive Lowell McAdam said Tuesday any potential investment in Canada is “off the table at this point” and while the company looked at the market “we never really seriously considered the move.” His comments came during an investor conference call held to discuss Verizon’s $130 billion bid to buy out Vodafone Group PLC’s stake in their Verizon Wireless joint venture.

That news prompted a slew of analysts to upgrade their price targets and/or their ratings on BCE, Rogers and Telus, triggering a surge in their share prices.

Verizon’s decision comes two weeks before initial deposits are due to participate in Canada’s planned auction for new wireless spectrum. The spectrum is key to offering new bandwidth-hogging mobile services. Bidding for a portion of the spectrum is limited to non-incumbent operators. The Canadian government had hoped this rule would invite new competitors to the sector. But analysts question that likelihood now that Verizon appears to have walked away.

About Canada Real Time

Canada Real Time provides insight and analysis into what’s making news in Canada, a country punching above its weight on the world stage thanks to its vast resources and strong banking sector. Drawing on the expertise of The Wall Street Journal and Dow Jones Newswires, we take a look at developments in fields ranging from business to politics to culture. You can contact the editors at canadaeditors@dowjones.com